Washington, D.C. 20549

x		ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
o		TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________________ to ________________________.

 

 

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Table of Contents

		Page
Report of Independent Registered Public Accounting Firm			1
Financial Statements:
Statements of Net Assets Available for Benefits as of December 31, 2005 and 2004			2
Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2005 and 2004
Notes to Financial Statements			4
Supplemental Schedule:
Schedule H, line 4i—Schedule of Assets (Held at End of Year) as of December 31, 2005			8
Signatures:			9
Exhibit
Exhibit 23—Consent of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The Participants and Plan Administrator of
The Kansas City Southern Railway Company Union 401(k) Plan:

We have audited the accompanying statements of net assets available for benefits of the Kansas City Southern Railway Company Union 401(k) Plan (the Plan) as of December 31, 2005 and 2004, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2005 and 2004, and the changes in net assets available for benefits for the years then ended in conformity with U.S. generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

/s/ KPMG LLP

Kansas City, Missouri
June 28, 2006

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Statements of Net Assets Available for Benefits

December 31, 2005 and 2004

		2005				2004
Assets:
Cash and temporary investments		$	3,740				3,156
Investments, at fair value:
Common stock of Kansas City Southern			27,777				6,613
Common collective trust			72,337				57,651
Mutual funds			639,345				575,366
Total investments			739,459				639,630
Total assets			743,199				642,786
Liabilities:
Investment trades payable			3,562				3,088
Net assets available for benefits		$	739,637				639,698

See accompanying notes to financial statements.

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Statements of Changes in Net Assets Available for Benefits

Years ended December 31, 2005 and 2004

		2005				2004
Additions:
Investment income:
Interest and dividends		$	32,169				11,638
Net appreciation in fair value of investments			9,449				48,048
Total investment income			41,618				59,686
Participant contributions			108,453				68,739
Total additions			150,071				128,425
Deductions:
Benefits paid			(50,132	)			(18,165	)
Increase in net assets available for benefits			99,939				110,260
Net assets available for benefits:
Beginning of year			639,698				529,438
End of year		$	739,637				639,698

See accompanying notes to financial statements.

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Notes to Financial Statements

December 31, 2005 and 2004

(1)		Description of the Plan
		The following description of the Kansas City Southern Railway Company Union 401(k) Plan (the “Plan”) is provided for general information purposes only. More complete information regarding the Plan’s provisions may be found in the plan document.

	(a)		General
			The Plan is a participant-directed, defined contribution plan adopted on January 1, 1997. The Plan covers all full-time employees of The Kansas City Southern Railway Company (the Company) who are members of one of the following collective bargaining units: Brotherhood of Railway Carmen—Division of Transportation Communications International Union, Brotherhood of Railroad Signalmen, The American Railway and Airway Supervisors Association—Division of Transportation Communications International Union, Transportation Communications International Union Clerks, and The National Conference of Firemen & Oilers. Plan entry dates are the first day of each calendar quarter. A plan participant that ends his or her membership in any of the above collective bargaining units is no longer eligible to make elective deferrals under the Plan but will continue to be vested under the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
	(b)		Plan Administration
			The Plan is administered by the Compensation and Organization Committee which is appointed by the board of directors of the Kansas City Southern Railway Company (the “Company”). The Plan’s trustee Nationwide Trust Company (the “Trustee”), is responsible for the custody and management of the Plan’s Assets.
	(c)		Contributions
			Each year, participants may contribute a portion of their annual eligible compensation, as defined in the plan document, not to exceed a specified dollar amount as determined by the Internal Revenue Code (IRC). The Company does not match participant contributions. Upon enrollment in the Plan, a participant may direct their contributions into any of the various funds offered by the Plan. Effective July 1, 2002, the Plan added Kansas City Southern (NYSE:KCS) common stock as an investment option.
	(d)		Vesting
			Participants are immediately vested in their contributions plus actual Plan earnings thereon.
	(e)		Payment of Benefits
			Distributions generally will be made in the event of retirement, death, disability, resignation, or dismissal. A participant’s normal retirement age is 65. The Plan also provides for distribution at age 591/2. Distributions after termination of employment will be made in a lump-sum payment. Balances not exceeding $1,000 will be paid out within one calendar year of termination of employment. Balances exceeding $1,000 will be paid upon the distribution date elected by the

		4		(Continued)

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Notes to Financial Statements

December 31, 2005 and 2004

			participant, but no later than March 1 following the calendar year in which the participant attains the age of 701/2.
			On retirement, death, disability, or termination of service, a participant (or participant’s beneficiary in the event of death) may elect to receive a lump-sum distribution equal to the participant’s vested account balance. In addition, hardship distributions are permitted if certain criteria are met.
	(f)		Participant Accounts
			Each participant’s account is credited with the participant’s contribution and an allocation of Plan earnings, net of investment expenses. Allocations are based on participant earnings or account balances, as set forth in the plan agreement. The benefit to which a participant is entitled is that which can be provided from the participant’s account.

(2)

Summary of Significant Accounting Policies

	(a)		Basis of Presentation and Use of Estimates
			The accompanying financial statements are prepared on the accrual basis of accounting. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan’s management to use estimates and assumptions that affect the accompanying financial statements and disclosures. Actual results could differ from these estimates.
	(b)		Income Recognition
			Interest income is recorded as earned on the accrual basis. Dividend income is recorded on the ex-dividend date.
	(c)		Investment Valuation
			Investments in mutual funds and common stocks are stated at fair value as determined by quoted market prices. The assets held in a common collective trust (Invesco Stable Value Fund) are valued at contract value, which approximates fair value, as determined by the AMVESCAP National Trust Company.
	(d)		Net Appreciation (Deprecation) in Fair Value of Investments
			Net realized and unrealized appreciation (depreciation) is recorded in the accompanying statement of changes in net assets available for benefits as net appreciation in fair value of investments.
			Brokerage fees are added to the acquisition costs of assets purchased and subtracted from the proceeds of assets sold.
	(e)		Administrative Expenses
			Investment expenses are paid by the Plan as long as plan assets are sufficient to provide for such expenses. Administrative expenses are principally paid by the Company.

		5		(Continued)

Schedule 1

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Schedule H, line 4i—Schedule of Assets (Held at End of Year)

December 31, 2005 and 2004

(3)		Investments
		The following presents investments that represent 5 percent or more of the Plan’s net assets:

		2005				2004
Invesco Stable Value, 72,337 and 57,651 units, respectively		$	72,337				57,651
Allianz Funds OCC Renaissance Admin, 2,449 and 0 units, respectively			53,115				—
Franklin Balance Sheet Investment Fund—Class A, 1,237 and 1,053 units, respectively			76,331				61,329
Growth Fund of America, 1,708 and 1,397 units, respectively			52,709				38,239
Janus Fund, 4,894 and 5,014 units, respectively			124,936				123,867
MFS Value Fund, 1,851 and 1,813 units, respectively			42,840				41,961
PIMCO Renaissance, 0 and 1,961 units, respectively			—				52,656
PIMCO Total Return Administrative Shares, 8,063 and 6,216 units, respectively			84,666				66,324
Scudder Equity 500 Index, 201 and 215 units respectively			—				29,132
Washington Mutual Investors, 1,614 and 1,984 units, respectively			49,791				61,058

During 2005 and 2004, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $9,449 and $48,048, respectively, as follows:

		2005				2004
Kansas City Southern common stock		$	3,029				1,111
Mutual funds			6,420				46,937
		$	9,449				48,048

(4)		Portfolio Risk
		The Plan provides for investments in various securities that, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits.
(5)		Tax Status
		The Plan received a favorable determination letter from the Internal Revenue Service, dated August 9, 2002, indicating that it is qualified under Section 401(a) of the Internal Revenue Code (the Code), and therefore, the related trust is exempt from tax under Section 501(a) of the Code. The determination letter is applicable for amendments executed through April 1, 2002. The tax determination letter has not been updated for the latest plan amendments occurring after April 1, 2002. However, the plan administrator

		6		(Continued)

Schedule 1

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Schedule H, line 4i—Schedule of Assets (Held at End of Year)

December 31, 2005 and 2004

		believes that the Plan is designed and is being operated in compliance with the applicable requirements of the IRC. Therefore, the plan administrator believes that the Plan was qualified and the related trust was tax-exempt for the years ended December 31, 2005 and 2004.
		The Company is not aware of any activity or transactions that may adversely affect the qualified status of the Plan.
(6)		Plan Termination
		Although it has expressed no intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. Upon termination of the Plan, the participants shall receive amounts equal to their respective account balances.

		7		(Continued)

Schedule

THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN

Schedule H, line 4i—Schedule of Assets (Held at End of Year)

December 31, 2005

Identity		Description		Fair value
Common stock:
*Kansas City Southern common stock		1,137 shares, with a fair value of $24.43 per share		$	27,777
Common collective trust:
Invesco Stable Value		72,336.5 shares, with a fair value of $1.00 per share			72,337
Mutual funds:
AIM Small Cap Growth Fund		1,163.429 shares, with a fair value of $27.51 per share			32,006
Allianz Fund OCC Renaissance Admin		2,448.807 shares, with a fair value of $21.69 per share			53,115
American Balanced		769.414 shares, with a fair value of $17.82 per share			13,711
American Century Real Estate/Advisor		572.81 shares, with a fair value of $25.49 per share			14,601
EuroPacific Growth		755.561 shares, with a fair value of $41.10 per share			31,054
Franklin Balance Sheet Investment Fund— Class A		1,236.538 shares, with a fair value of Class A $61.73 per share			76,331
Growth Fund of America		1,708.018 shares, with a fair value of $30.86 per share			52,709
ING International Value Fund		1,719.311 shares, with a fair value of$17.88 per share			30,741
Janus Fund		4,893.697 shares, with a fair value of $25.53 per share			124,936
Janus Twenty Fund		97.297 shares, with a fair value of $48.92 per share			4,760
MFS Value Fund		1,850.543 shares, with a fair value of $23.15 per share			42,840
PIMCO Total Return Administrative Shares		8,063.461 shares, with a fair value of $10.50 per share			84,666
Scudder Equity 500 Index		200.815 shares, with a fair value of $139.85 per share			28,084
Washington Mutual Investors		1,614.494 shares, with a fair value of $30.84 per share			49,791
Total investments				$	739,459

*Party-in-interest.

See accompanying report of independent registered public accounting firm.

		8

		The Kansas City Southern Railway Company Union 401(k) Plan
June 27, 2006		By: /s/ Eric B. Freestone
		Name: Eric B. Freestone
		Title: Vice President Human Resources